Core Thesis - Fortinet, Inc. is experiencing strong financial performance, with significant growth in revenue and margins, positioning the company favorably for sustained growth despite some concerns in service revenue [2][5]. Financial Performance - Fortinet reported Q3 revenue of $1.72 billion, a 14% year-over-year increase, driven by strong performance in EMEA and APAC markets [2]. - Product revenue increased by 18% to $559 million, attributed to multi-product deals and expansion in operational technology (OT) security [2]. - Service revenue rose 13% to $1.17 billion, although it has been decelerating for nine consecutive quarters, with expectations for growth to pick up in the second half of 2026 [2]. Billings and Customer Growth - Billings reached $1.81 billion, exceeding guidance, with large deals over $1 million increasing by 32% year-over-year [3]. - The company added approximately 6,600 new customers, indicating strong demand and deal momentum [3]. Profitability Metrics - Non-GAAP EPS was reported at $0.74, a 17% increase year-over-year, significantly above consensus estimates [3]. - Operating margins reached a record 36.9%, reflecting effective cost management and operational efficiency [4]. - Gross margins remained robust at 81.6%, despite a slight decline due to product mix shifts [3][4]. Capital Management - Fortinet executed a $1.83 billion share repurchase program, with $796 million remaining under its current authorization [4]. - Adjusted free cash flow totaled $646 million, representing a 37% margin, even with increased infrastructure spending [4]. Strategic Outlook - Despite concerns over decelerating service revenue and moderated 2025 guidance, Fortinet's strong product performance and operational efficiency position it well for future growth [5]. - The combination of high-margin product expansion, disciplined cost management, and shareholder-friendly actions highlights Fortinet's ability to generate durable cash flow [5].

Core Viewpoint - The article discusses the investment positions and recommendations of The Motley Fool, particularly highlighting Fortinet as a recommended stock [1] Group 1 - Parkev Tatevosian, CFA, has no position in any of the stocks mentioned [1] - The Motley Fool has positions in and recommends Fortinet, indicating a positive outlook on the company's stock [1] - The Motley Fool has a disclosure policy regarding its investment recommendations [1]

Group 1 - Fortinet (FTNT) has reached a significant support level and shows potential for investors from a technical perspective, having recently broken through the 50-day moving average, indicating a short-term bullish trend [1] - FTNT shares have increased by 5.8% over the past four weeks, and the company holds a Zacks Rank 3 (Hold), suggesting the possibility of continued upward movement [2] - Positive earnings estimate revisions further strengthen the bullish case for FTNT, with no estimates decreasing in the past two months and 16 estimates increasing, alongside a rise in the consensus estimate [2] Group 2 - Investors are encouraged to consider adding FTNT to their watchlist due to the important technical indicator and the positive trend in earnings estimate revisions [3]

Core Insights - Fortinet, Inc. (FTNT) is a leading U.S.-based cybersecurity company providing a wide range of security solutions, including next-generation firewalls, cloud and network security, endpoint protection, and threat detection services, all integrated through its Fortinet Security Fabric platform [1] - FTNT has a market capitalization exceeding $10 billion, categorizing it as a large-cap stock, and it is well-positioned to benefit from the increasing demand for unified and scalable cybersecurity solutions due to its strong profitability and growing global customer base [2] Stock Performance - FTNT shares have decreased by 27.8% from their 52-week high of $114.82, reached on February 18, while the stock has gained 7.8% over the past three months, underperforming the Dow Jones Industrial Average's 4.8% rise during the same period [3] - Year-to-date, FTNT shares have dipped 12.2%, and over the past 52 weeks, they have declined by 13%, contrasting with the Dow Jones Industrial Average's YTD gains of 11.6% and 6% returns over the last year [4] Market Sentiment - On November 12, Fortinet shares fell over 1% following a downgrade by Daiwa Securities, which changed its rating from "Outperform" to "Neutral," citing concerns over near-term growth momentum and valuation pressures in the cybersecurity sector [5] - In the competitive landscape, Palo Alto Networks, Inc. (PANW) has shown resilience, with a 4.4% increase on a year-to-date basis, while FTNT has struggled [6]

Core Insights - The article emphasizes the importance of understanding macro trends and their influence on asset prices and investor behavior, particularly in the context of equity analysis and research [1]. Group 1: Professional Background - The expert has over 10 years of experience in asset management, focusing on equity analysis, macroeconomics, and risk-managed portfolio construction [1]. - The professional background includes advising on and implementing multi-asset strategies, with a strong emphasis on equities and derivatives [1]. Group 2: Investment Philosophy - The goal of sharing insights is to make investing accessible, inspiring, and empowering for fellow investors [1]. - The expert encourages building confidence in long-term investing through shared knowledge and collaboration [1].

Core Insights - Climb has launched a strategic partnership with Fortinet, enhancing its cybersecurity solution offerings and providing significant opportunities for its reseller ecosystem [1][2][3] Company Overview - Climb is a global specialty technology distributor focusing on various IT sectors, including Security, Data Management, and Cloud solutions [8] - Climb is a wholly owned subsidiary of Climb Global Solutions, Inc. (NASDAQ: CLMB) [8] Partnership Details - The partnership with Fortinet allows Climb to offer enterprise-grade security solutions that provide deep automation and real-time protection across devices, data, and applications [2][6] - This collaboration is expected to amplify Climb's impact in the cybersecurity market and support its partners in addressing complex security challenges [3][6] Benefits to Resellers - Climb's reseller ecosystem will gain access to Fortinet's proven security solutions, enabling them to deliver trusted protection and performance to customers across various industries [2][4] - The partnership is designed to foster personalized engagement, allowing resellers to maintain close connections with their customers and provide tailored consultative guidance [7] Strategic Focus - Climb emphasizes a curated cybersecurity portfolio, ensuring that all solutions undergo a rigorous vetting process to guarantee effectiveness and reliability [6] - The company aims to avoid dilution in its offerings by focusing on both emerging innovators and established leaders like Fortinet [7]

Core Viewpoint - The article emphasizes a personal investment strategy focused on growth and dividend income, aiming for an easy retirement through a portfolio that generates monthly dividend income and benefits from reinvestment and annual increases [1]. Group 1: Investment Strategy - The strategy involves creating a portfolio that prioritizes compounding dividend income and growth [1]. - Monthly dividend income is a key component of the portfolio, which is structured to grow through reinvestment [1]. Group 2: Personal Position - The author has a beneficial long position in the shares of Cisco Systems (CSCO) through stock ownership, options, or other derivatives [1].

Core Viewpoint - The article emphasizes a personal investment strategy focused on growth and dividend income, aiming for an easy retirement through a portfolio that generates monthly dividend income and benefits from reinvestment and annual increases [1]. Group 1: Investment Strategy - The strategy involves creating a portfolio that prioritizes compounding dividend income and growth [1]. - Monthly dividend income is a key component of the strategy, which is designed to grow through reinvestment and yearly increases [1]. Group 2: Personal Position - The author has a beneficial long position in the shares of Cisco (CSCO), indicating confidence in the company's performance [1].

Core Insights - Cybersecurity is poised to become the next significant opportunity in the AI sector, potentially leading to long-term outperformance for cybersecurity stocks [1] - The rise of AI has enabled cybercriminals to launch more sophisticated and automated attacks, increasing the demand for cybersecurity solutions [3][4] - The integration of physical AI, such as autonomous vehicles and robots, presents new vulnerabilities that cybersecurity companies must address [6][7] Group 1: Cybersecurity Market Dynamics - The influx of cyberattacks will enhance the value of cybersecurity software, as businesses seek to protect sensitive information [3] - Cybersecurity companies generate annual recurring revenue through subscription models, leading to predictable cash flow and growth [9][10] - Companies like CrowdStrike and Palo Alto Networks have reported significant year-over-year increases in annual recurring revenue, indicating strong market demand [11] Group 2: Investment Opportunities - The growth of physical AI technologies creates additional revenue opportunities for cybersecurity firms as they develop solutions to protect these systems [8][12] - The current valuations of cybersecurity stocks are high, necessitating continued growth, which may be driven by advancements in AI [12] - As the AI landscape evolves, the digital infrastructure of cybersecurity companies will become increasingly valuable, particularly in safeguarding autonomous technologies [13]

Core Insights - The Zacks Security industry is experiencing strong demand for cybersecurity products due to the increasing need for secure networks and cloud-based applications, particularly in hybrid work environments [1] - Companies such as CrowdStrike, Fortinet, Okta, and Qualys are benefiting from these trends, although short-term growth may be hindered by economic slowdown and increased operating expenses [2] Industry Overview - The Zacks Security industry includes companies providing on-premise and cloud-based security solutions, addressing needs like identity access management, infrastructure protection, and malware analysis [3] - The industry is categorized into Computer Security, Cybersecurity, and Information Security, each focusing on different aspects of data protection [3] Major Trends - Rising cyber threats are driving demand for IT security solutions, with an increase in cyberattacks impacting both individual companies and national security [4] - Accelerated digital transformation and cloud migration are fueling growth, as various sectors become more reliant on technology, increasing their vulnerability to cyberattacks [5] - Macroeconomic headwinds may lead to delayed IT spending, as organizations conserve cash amid economic uncertainties [6] - High operating expenses related to R&D and sales efforts could pressure profit margins in the near term [7] Industry Performance - The Zacks Security industry ranks 56, placing it in the top 23% of nearly 250 Zacks industries, indicating solid near-term prospects [8] - The industry's earnings outlook is positive, with aggregate earnings estimates for 2025 revised up to $1.61 from $1.40 a year ago [10] - Over the past year, the industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500, gaining only 8.6% compared to 29.5% and 16.5% respectively [11] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-sales ratio of 12, higher than the S&P 500's 5.3 and the sector's 6.69 [14] Company Highlights - **Qualys**: A leading provider of information security solutions, benefiting from demand for cloud-based cybersecurity solutions. The consensus estimate for its 2025 earnings has been revised upward by approximately 8% to $6.91 per share [21][24] - **CrowdStrike**: A leader in endpoint protection and cyberattack response services, with a strong portfolio and growth driven by digital transformation. The consensus mark for its fiscal 2026 earnings remains at $3.67 per share [27][29] - **Fortinet**: Provides network security solutions and is benefiting from strong demand from large enterprises. The Zacks Consensus Estimate for its 2025 earnings has been revised upward by 13 cents to $2.65 per share [32][35] - **Okta**: A leading provider of identity security, experiencing increased traction in its solutions. The consensus mark for its fiscal 2026 earnings remains at $3.37 per share [38][40]